Inflation Tsunami Ahead
Inflation Tsunami Ahead by Michael Pento – 24hGold
Inflation is one of the most misunderstood, misused and lied about topics in economics. The Fed professes to know what causes it: an overly employed workforce. But, perhaps it is aware this is false and intentionally promulgates the ruse of growth as inflation’s progenitor because central banks want to deflect attention away from its money printing. Nevertheless, one thing is abundantly clear, we all have to agree that the Fed can’t readily control the exact rate of inflation; nor can it direct what the repositories will be for its quantitative counterfeiting misadventures.
Ever since the Great Recession, the Fed, along with all other major central banks, adopted a perplexing 2% inflation target. Their avowed purpose was that a 2% inflation rate is a necessary condition to maintain a healthy economy. However, the sad truth behind central banks’ inflation targets is that a constant rate of inflation is now sought in order to prevent asset prices from ever deflating as they did during the Great Recession.
Inflation, at least as measured by the Fed, has been below target for the past nine years. Ironically, nine years of failure to reach its dollar-depreciation goal has not dissuaded the Fed to temporarily reverse course on its Quantitative Easing and Zero Interest Rate Policies. Perhaps this is because it is in a panic to refill the money printing presses with ink before the next recession is upon us.
However, the Fed will soon be back in the interest manipulation business like never before in its history. And its 2% inflation target will be something that only can be viewed far into the rearview mirror.
Here’s why. Given the record $21 trillion of U.S. National debt (105% of GDP) and our escalating solvency concerns, the current 2.6% benchmark Treasury yield should already be much higher than the historical average of around 7%. Then, we when you throw in the fact the Fed’s balance sheet reduction increases to $50 billion per month by October. And, when considering the ECB has already halved its QE program, and is predicted to be finished printing money by the end of this year; yields on sovereign debt will soon be rising sharply across the globe.
And now you have to also throw into this rising rate recipe the fact that the Bank of Japan just reduced its bond purchases; and China has issued a brand-new threat to stop buying Treasuries. According to Bloomberg, senior government officials in Beijing have recommended slowing or halting purchases of U.S. Treasuries. This is most likely in response to Trump’s threats of tariffs and sanctions against China. That’s the first step before outright sales. Since the Communist nation is the world’s largest holder of US debt, you can realize the precarious position of this bond bubble.